Why does a decline in the west point towards success in the east?
When it comes to investing in property, the state of the market must be considered in order to ascertain exactly where the most promising places to buy are.
In its current state, the markets on the west coast of Australia are pointing towards you moving eastward. But why is that?
How the west was lost
What can it all be put down to? The end of the mining boom.
In a recent report from Jones Lang LaSalle (JLL), there is a truly dire situation emerging all across Western Australia. Up until November 2015, Port Hedland, for example, had fallen in median house price to $611,000, a drop of 27.4 per cent. Derby has also recorded major decreases, bottoming out at $270,000 after recording a staggering drop to 32.5 per cent. In fact, Derby has declined by a total of 50 per cent per annum over the past three years.
And what can it all be put down to? The end of the mining boom.
Karratha, which lies close to mining sites inland of Perth, has also seen severe falls recently, recording a 45.5 per cent decline over the past five years. Such drops have all but crippled the property market in Australia's largest state, and that could be the catalyst for a major influx of property purchasing on the other side of the country. As investors find other regions to buy property in, Western Australia will not be on their radars at all, so the east coast will look very attractive.
While prices across the country are not often comparable, the markets in Sydney, Melbourne and Brisbane are at least moving in the right direction for capital gains, and that is great news for anyone wanting to grow a portfolio.
How are the east markets growing?
According to the BIS Shrapnel Australian Housing Outlook 2015-18, the market in Sydney has grown by 44 per cent in the past two years to exceed the $1 million mark in median house price, sitting at $1,034,100. On top of that, there is expected to be a 7 per cent growth to $1,110,000 by June 2016, making the immediate potential for capital gains a reality. It's worth remembering that property returns are made when you purchase, not when you sell. If you do your research, buy in an area suggested by your buyer's agent and don't pay through the nose for it, capital gains are a shoe-in.
Sydney isn't suffering from the end of a mining boom, so property prices are essentially solid. When the economic value of the city is considered, there are few arguments that it is the economic centre of Australia, so attracting businesspeople to your rental properties could see great rental yields. A CoreLogic RP Data end-of-year report for 2015 showed gross total returns for Sydney property come in at a whopping 16.8 per cent, which is great news for investors.
Melbourne is in a similar state of growth. BIS Shrapnel found that the rate of growth in the cultural capital is less than the astronomical heights seen by Sydney at only 28 per cent, but the median house price is much more affordable at $734,300. CoreLogic reports that the gross return rate of Melbourne property is also less than Sydney's at 15.5 per cent, but as a more affordable avenue onto the property ladder, that may not make a difference to potential buyers.
Brisbane is even more affordable with a median house price of just $511,300 and gross total returns topping out at 8.8 per cent. Widely regarded as a burgeoning market leading up to the 2018 Commonwealth Games, Brisbane property "is expected to experience broader price growth in 2015/16 as buyer confidence improves," said BIS Shrapnel Senior Manager Angie Zigomanis.
Are you looking to shift across the country and cash in on the east coast? Talk to Cohen Handler and see what its services will do for your property portfolio.